Should you and the firm use the same lawyer in a customer dispute? Recent disputes change the landscape.
A repeating question at my web site comes from brokers who are named in an arbitration proceeding by a customer, and whose firm offers to provide the attorney to represent both the broker, and the firm. The question is always, do I need my own attorney? With the recent issues regarding analyst recommendations, the issue is being raised more frequently.
Unfortunately, the answer is not simple. In the 18 or so years that I have been handling securities arbitration matters I have been on both sides of the issue representing a broker with another attorney representing the firm, representing the firm without representing the broker. However, far more common is the situation where I represent both the broker and the firm.
Sometimes, such as when the broker has claims against the firm, joint representation is impossible. When a broker has left the firm, and there are unresolved issues between the broker and the firm, the firm-broker dispute prevents the joint representation. Similiarly, when the firm has claims against the broker, even if the claims are unrelated to the customer claim being litigated, one lawyer should not represent both the firm and the broker.
However, such conflicts are rare, and in the overwhelming majority of cases, there is no conflict between the broker and the firm, and it is possible to use one attorney.
The question arises however, when the broker is not convinced that the attorney, who is usually selected by the firm, is going to zealously represent the brokers individual interest, as well as the firms interest. In the largest sense, the broker and the firm both have the same interest to defend the claim. The facts and legal principles which work in the brokers favor also work in the firms favor. Additionally, in the usual case, the firm is only liable if the broker is liable, as the firm itself is not accused of committing a wrong, it is the broker who is so accused. In that instance, the firm is only liable if the broker is liable, and there is truly a united interest.
In more complicated cases, the interest of the firm and the broker may be different. For example, in a case where there are the usual sales practice allegations mixed with a market manipulation case, the broker may feel that the case will focus on the market manipulation theories, for which he has no responsibility, and impact his defense of the sales practice case. The recent press reports regarding the dispute between firm policy and brokers over the handling of stock options demonstrates the conflict too clearly. Recent press reports indicate that Merrill Lynch may consider blaming its brokers for certain recommendations, and if that occurs, there is clearly a conflict between the firm and the broker, and the broker needs to have his own attorney.
In other instances, such as where the broker has left the firm, even if a dispute does not exist, joint representation may be precluded by a simple lack of trust between the firm and the broker. Another cause for concern is where the broker, by his contract with the firm, is responsible for the loss, and, regardless of the outcome of the arbitration proceeding, he will be forced to pay the award, as well as the attorneys fees.
In this instance, the broker is sometimes concerned that the firm will force him to settle the matter when he wants to defend himself, and that the attorney, selected by the firm, will take the firms side in a settlement dispute. Other times, the broker simply feels that having an attorney who was responsible for his aspect of the case would give him better legal advice.
First, the reasons not to use separate attorneys. In cases where the broker is still employed by the firm, the usual practice is for both to use the same attorney. Deviating from this norm may send the wrong signals to the customer and his attorney, inadvertently telling them that there is a dispute between the respondents. If the customer believes that such a dispute exists, he may press his claim with more zeal, he may not be willing to discuss settlement, or he may simply make unreasonable settlement demands because he thinks he has discovered a weakness in the defense.
Another reason not to use separate attorneys is the concept of having two quarterbacks. Law and arbitration is not a science. There is no one correct answer, and no one right strategy for defending a claim. Like a football team with two head coaches, a defense team with two lead attorneys often leads to difficulties in agreeing how to present the case, which witnesses to call, or not to call, and differences in the overall strategy.
Cost is also a factor. While using two attorneys does not necessarily mean that the costs are doubled, there is an obvious increase in the defense legal bill, and in the costs. While defense counsel will decide which attorney is going to take the lead, and will divide the work, there is an obvious overlap in effort, and thus costs.
The arguments in favor of using two attorneys are less compelling. The typical argument in favor of using a separate attorney is the thought that an attorney whose sole function is to represent the broker will do a better job representing the broker. There is some merit to the concept that an attorney who is only representing the broker will only have the brokers interests at heart, but in reality, the position of the firm and the broker are so intertwined that it is impossible to represent one without considering the impact on the other.
The reality is that in most cases, one attorney can, and does, represent the firm and the broker, and usually the other respondents in the arbitration who are employed by the same firm, and there is no reason to do otherwise.
The most important factor in making the decision is to be represented by an attorney who you trust and who you have confidence in. You also need an attorney who knows the securities laws, who understands the regulations and practices at issue, and who understands the arbitration process. Typically, that will be the firms attorney, whether he is in-house, or outside counsel. However, if the firms attorney does not meet this description, I suggest a frank and honest conversation with the attorney, to iron out any issues or concerns. If that does not work, brokers should not hesitate to retain their own attorney, and deal with the costs and appearance issues later.
After all, the money spent on a second attorney pales in comparison to the money that can be lost in an arbitration.
Mark J. Astarita is a partner in the law firm of Beam & Astarita, LLC and represents broker-dealers and individual brokers across the country in litigation, arbitration and regulatory matters. He is the founder of The Securities Law Home Page (www.seclaw.com), and can be reached at www.seclaw.com or at . This article originally appeared in the February 2001 issue of Research Magazine, and was updated in January 2002 and May 2002.
Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article.
Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article. SECLaw.com was created by and is sponsored by Mark J. Astarita, Esq., a securities attorney and partner in the law firm of Beam & Astarita, LLC, who represents financial professionals in a wide variety of matters. Mr. Astarita can be contacted by email at firstname.lastname@example.org.
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